Difference Between Financial Accounting and Management Accounting

Accounting is a process of systematically identifying, recording, classifying, reporting, analyzing

and interpreting the results thereof to the users of the financial statement. The two major branches
of Accounting are Financial Accounting and Management Accounting.
Financial Accounting, is an accounting system which gives true and a fair view of the financial
position of the company to various parties.
financial accounting is used to present the financial health of an organization to its external
stakeholders. Board of directors, stockholders, financial institutions and other investors are the
audience for financial accounting reports. Financial accounting presents a specific period of time
in the past and enables the audience to see how the company has performed. Financial accounting
reports must be filed on an annual basis, and for publically traded companies, the annual report
must be made part of the public record.
Financial Accounting is an accounting system that focuses on the preparation of financial
statement of an organization to provide the financial information to the interested parties.
Financial Accounting is an accounting system which is concerned with the preparation of financial
statement for the outside parties like creditors, shareholders, investors, suppliers, lenders,
customers, etc. It is the purest form of accounting in which proper record keeping and reporting of
financial data is done, in order to provide relevant and material information to its users.
Financial Accounting is based on various assumptions, principles and convention like going
concern, materiality, matching, realization, conservatism, consistency, accrual, historical cost etc.
The financial statement consist of a Balance Sheet, Income statement and Cash flow statement
which are prepared as per the guidelines provided by the relevant statute.
Normally, the statements based on the financial accounting are prepared for one accounting year,
to enable the user to make comparisons regarding the financial position, profitability and
performance of the company in a specific period. Not only external parties but internal
management also gets information for forecasting, planning and decision making.

Management Accounting,s an accounting system which provides both the quantitative and
qualitative information to the managers
Management or managerial accounting is used by managers to make decisions concerning the
day-to-day operations of a business. It is based not on past performance, but on current and future
trends, which does not allow for exact numbers. Because managers often have to make operation
decisions in a short period of time in a fluctuating environment, management accounting relies
heavily on forecasting of markets and trends.
the accounting system which provides relevant information to the managers to make policies,
plans and strategies for running the business effectively is known as Management Accounting.
Management Accounting is the accounting for managers which helps the management of the
organization to formulate policies and forecasting, planning and controlling the day to day
business operations of the organization. Both the quantitative and qualitative information are
captured and analyzed by the management accounting.
The functional area of management accounting is not limited to providing a financial or cost
information only, instead it extracts the relevant and material information from financial and cost
accounting to assist the management in budgeting, setting goals, decision making etc. The
accounting can be done as per the requirement of the management, i.e. weekly, monthly, quarterly,
etc. and there is no format set on the basis of which it is to be reported.
Key Differences Between Financial Accounting and Management Accounting
The following are the major differences between financial accounting and management
accounting:
1 Financial Accounting is the branch of accounting which keeps tract of all the financial

information of the entity. Management Accounting is that branch of accounting which records
and reports both the financial and non financial information of an entity.
2 Users of financial accounting are both the internal management of the company and the
external parties while the users of the management accounting are only the internal
management.
3 Financial accounting is to be publicly reported whereas the Management Accounting is
for the use of the organization and hence it is very confidential.
4 Financial Accounting is done in the prescribed format, whereas there is no prescribed
format for the Management Accounting.
5 Financial Accounting focuses on providing information about the functioning of the
entitys business to its users, whereas Management Accounting focuses on providing
information to help them in evaluating the performance and devising plans for the future.
6 The financial accounting is mainly done for a specific period, which is normally 1 year.
On the other hand, the management accounting is done as per the needs of the management
say quarterly, half yearly etc.
7 Financial accounting is a must for any company for auditing purposes. On the contrary,
management accounting is voluntary, as no editing is done.
Similarities

Used by the Internal Management.

Evaluation of Performance.
Branch of Accounting.
Presents the position of entity.